Strike a Stability: Commerce Agreements for Resilient & Accountable Provide Chains

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5 suggestions for commerce policy-makers.

To safe the demand for battery minerals, the EU must set the appropriate commerce framework to spice up resilience, sustainability and mutual profit. A brand new report and briefing discover how Free Commerce Agreements will be one solution to strike this steadiness.

As Europe races to safe the crucial mineral wants for clear power applied sciences, resembling electrical autos (EVs), agreeing commerce partnerships will likely be crucial as annual battery metallic volumes in 2050 are estimated to be 4 to 10 instances increased than immediately. Even within the situation of accelerated innovation and smaller batteries, the electrification of EU passenger transport will nonetheless require round 5.4 Mt of nickel and 1.9 Mt of lithium.

Whereas the long-term imaginative and prescient is circularity, Europe will likely be depending on imports for many years to return. By 2030, the EU will depend on international imports of battery metals within the order of 30% to 65%, relying on the metallic.

The necessity for extra crucial minerals requires a strategic reassessment of the EU’s international method to producer international locations in an effort to safe required supplies, scale sustainable and accountable sourcing and processing practices, and keep away from over-concentration. Free commerce agreements (FTAs) are an important piece within the bigger puzzle of constructing diversified provide chains, alongside Strategic Partnerships or the not too long ago adopted EU Company Sustainability Due Diligence Directive (CSDDD).

By offering a structured framework, FTAs may also help the EU to behave as a dependable and cooperative accomplice and supply a legally binding framework with clear obligations on each side. Properly-designed FTAs can safe unrestricted commerce flows, encourage EU firms to spend money on native processing services, assist producing-countries to scale their inexperienced industrialisation and enhance sustainability via constantly making use of Environmental Affect Evaluation and provide chain due diligence.

T&E has commissioned Tulip Consulting to conduct a authorized research to discover how FTAs can promote mutually helpful commerce in crucial uncooked supplies for all events concerned. This implies securing the minerals the EU wants for the power transition whereas selling accountable practices and including worth in resource-rich international locations. This briefing summarises how this may be completed, serving as a memo for commerce policy-makers.

To make FTAs work for each events, T&E means that policy-makers ought to:

1. Permit beneficial uncooked materials costs for producer international locations’ personal inexperienced targets

Permitting resource-rich international locations to tender their uncooked supplies cheaper domestically, as is finished in Chile, could make worth addition extra enticing. To this finish, FTAs ought to embrace particular carve-outs in twin pricing provisions to permit producing international locations to promote uncooked supplies extra cheaply to native downstream sectors. The EU ought to be sure that acceptable circumstances are hooked up to those carve-outs, resembling implementing a workable or eliminating a value flooring, to cut back overly stringent necessities to set off these carve-outs. On the similar time, export restrictions ought to be prohibited, together with to different events other than the EU.

2. Improve finest practices within the extractive sector

Whereas extractive operations can harm the setting and native communities, finest practices to cut back influence exist and ought to be constantly applied. FTAs ought to incorporate due diligence necessities particular to mining actions, together with administration plans for water, waste, biodiversity and mine decommissioning.

As well as, FTAs ought to require necessary compliance with worldwide due diligence requirements, i.e. these set by the OECD on human rights and setting.

3. Strengthen Environmental Affect Assessments

Environmental Affect Assessments (EIAs) are important for figuring out venture flaws, enhancing future actions and enhancing accountable provide chains by gathering key information for mitigation and enchancment. Whereas many FTAs already confer with EIAs, the use and extent of these assessments varies from settlement to settlement.

Commerce policy-makers ought to make EIAs necessary for all related actions with a major influence on the setting, with out jeopardising nationwide allowing deadlines or sooner processes for strategic initiatives. The scope of EIAs ought to be expanded to incorporate influence on public well being, biodiversity, land, soil water, air, local weather and cultural heritage and appearing upon EIA findings made necessary.

4. Beef up technical and monetary help

Most of the necessities to strengthen sustainability will fall on resource-rich international locations, who usually lack the monetary and technical sources to deal with these successfully. Whereas binding technical and monetary help provisions have been unusual in FTAs thus far, the brand new EFTA-India FTA does set binding funding targets for the EFTA bloc and might function a blueprint.

FTAs ought to embrace monetary help and technical help as an ordinary, together with devoted monetary help for sustainability initiatives in resource-rich international locations. Implementation and monitoring of those commitments ought to be included into the assessment progress.

5. Inexperienced premium for sustainable uncooked supplies

Sustainably and responsibly sourced crucial minerals usually require increased preliminary funding into finest out there know-how, resembling fossil free processing applied sciences, clear water and protected waste disposal. The issue is that that is presently not rewarded on commodity markets and cleaner initiatives wrestle to compete with cheaper, high-emitting provide as presently seen with nickel from Indonesia.

Rewarding cleaner provide on western markets via joint efforts can create the mandatory funding incentives. Initiatives such because the presently negotiated EU-US Vital Minerals Settlement or the Minerals Safety Partnership might facilitate the uptake of responsibly sourced, low-carbon minerals.

Within the brief time period, T&E recommends like-minded governments to agree on a transparent CO2 threshold as an entry situation to the markers of — e.g. — the EU, the US, Japan, South Korea and others. Provide coming from sources that don’t meet the standards ought to pay a penalty or not be admitted. As well as, purchasers of these supplies ought to be required to implement the OECD human rights and environmental due diligence and require the suppliers to endure at the least one self-assessment underneath the Initiative of Accountable Mining Assurance (IRMA) by 2026.

Within the case of nickel, T&E has recognized that setting a CO2 threshold of 30-40 kg CO2e per kg of nickel sulphate (or nickel metallic) would help the marketplace for cleaner nickel services.

Finally, attaining the power transition and constructing resilient, accountable battery provide chains depends upon international collaboration. FTAs may also help by permitting producing international locations to profit from their sources whereas attracting the mandatory funding from European firms, significantly within the midstream battery worth chain wanted to satisfy the demand for European battery manufacturing. Addressing this problem in a sustainable method with finest practices in neighborhood engagement, sourcing and waste administration is the problem of the twenty first century, underlining the significance of decision-makers adopting modern approaches and forward-looking methods.

Article from T&E.